Distributionally robust inference for extreme value-at-risk

DOI10.1016/J.INSMATHECO.2020.03.003zbMATH Open1445.91070arXiv1902.05853OpenAlexW3011651404MaRDI QIDQ784395FDOQ784395

Authors: Robert Yuen, Stilian Stoev, Daniel Cooley 

Publication date: 3 August 2020

Published in: Insurance Mathematics \& Economics (Search for Journal in Brave)

Abstract: Under general multivariate regular variation conditions, the extreme Value-at-Risk of a portfolio can be expressed as an integral of a known kernel with respect to a generally unknown spectral measure supported on the unit simplex. The estimation of the spectral measure is challenging in practice and virtually impossible in high dimensions. This motivates the problem studied in this work, which is to find universal lower and upper bounds of the extreme Value-at-Risk under practically estimable constraints. That is, we study the infimum and supremum of the extreme Value-at-Risk functional, over the infinite dimensional space of all possible spectral measures that meet a finite set of constraints. We focus on extremal coefficient constraints, which are popular and easy to interpret in practice. Our contributions are twofold. Firstly, we show that optimization problems over an infinite dimensional space of spectral measures are in fact dual problems to linear semi-infinite programs (LSIPs) -- linear optimization problems in an Euclidean space with an uncountable set of linear constraints. This allows us to prove that the optimal solutions are in fact attained by discrete spectral measures supported on finitely many atoms. Second, in the case of balanced portfolia, we establish further structural results for the lower bounds as well as closed form solutions for both the lower- and upper-bounds of extreme Value-at-Risk in the special case of a single extremal coefficient constraint. The solutions unveil important connections to the Tawn-Molchanov max-stable models. The results are illustrated with a real data example.

Full work available at URL: https://arxiv.org/abs/1902.05853

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zbMATH Keywords

regular variationvalue-at-risklinear semi-infinite programmingextremal coefficientsdistributionally robustextreme value-at-riskTawn-Molchanov

Mathematics Subject Classification ID

Linear programming (90C05) Statistical methods; risk measures (91G70) Semi-infinite programming (90C34)

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Cited In (14)

• Extremal spectral risk measures and their applications in financial risk management
• Improved inference on risk measures for univariate extremes
• On distributionally robust extreme value analysis
• Robustification and performance evaluation of empirical risk measures and other vector-valued estimators
• Tail-dependence, exceedance sets, and metric embeddings
• Tight bounds for a class of data-driven distributionally robust risk measures
• (Non-)robustness of maximum likelihood estimators for operational risk severity distributions
• Stochastic ordering in multivariate extremes
• Estimating and backtesting risk under heavy tails
• Shift-invariant homogeneous classes of random fields
• Extreme Measures in Continuous Time Conic Finace
• Statistical inference on a changing extreme value dependence structure
• Maximum Spectral Measures of Risk with Given Risk Factor Marginal Distributions
• Robust bounds in multivariate extremes

Uses Software

• QRM

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